VMware Cuts Revenue Guidance After Q1 Profit Drops 9 Percent


VMware reported first-quarter earnings Tuesday, and the results did little to stem investors' concerns about the health of its business.

During the quarter ended March 31, VMware reported a profit of $173.6 million, or 40 cents per share, representing a 9 percent drop from last year's first quarter. Revenue during the quarter was $1.19 billion, up 13 percent year-over-year.

On a non-GAAP basis, VMware earned 74 cents per share. Wall Street analysts were anticipating profit of 70 cents per share on $1.18 billion in revenue.

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VMware alarmed investors by cutting its revenue forecast for its current quarter and full fiscal year. For VMware's second quarter, the Palo Alto, Calif.-based vendor is expecting revenue of $1.21 billion to $1.24 billion. Wall Street analysts had been expecting $1.26 billion.

VMware in January forecast fiscal 2013 revenue of $5.23 billion to $5.35 billion, but is now expecting $5.12 billion to $5.24 billion. In addition to the "uncertain economic outlook," VMware CFO Jonathan Chadwick noted that the revised guidance reflects the removal of $110 million in revenue from the Pivotal Initiative joint venture with EMC.

VMware shares fell more than 6 percent to $71.16 in Tuesday after-hours trading.

VMware shares have dropped nearly 25 percent since the beginning of the year. The vendor is hoping that upcoming products will help stem the slide.

VMware plans to launch its Hybrid Cloud Service, which marks its entry to the public cloud space, on May 21, COO Carl Eschenbach said in a Q&A with analysts during the call. "There is very much a level of excitement from our customers and partners about VMware entering the market with a VMware-branded hybrid cloud service," he said.

In the Q&A, VMware CEO Pat Gelsinger said Hybrid Cloud Service -- a VMware-owned and operated service that will run in the data centers of as-yet unnamed service provider partners -- "meets the unique need in the marketplace."

VMware also expects to launch its NSX network virtualization offering, which includes technology from its $1.2 billion acquisition of Nicira, in the second half of the year, Eschenbach said on the call.

"By virtualizing the network, VMware NSX will allow customers to accelerate application deployment, lower both capital and operational cost and transform network operations in a non-disruptive manner," he said.

PUBLISHED APRIL 23, 2013